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State Pension Fund Returns Nearly $4 Billion Below Projections

An already bad week for State Treasurer Janet Cowell just got a little worse. On the heels of the Facebook fiasco, which raised several questions of dubious ethics, we now hear reports about the state pension fund’s lackluster performance for the 2011 fiscal year ended June 30.

North Carolina’s pension fund returned 2.21 percent for the fiscal year that ended June 30 and finished the year with $74.5 billion in assets, State Treasurer Janet Cowell’s office reported Friday.

In an unpredictable investment climate, a 2.2% return may sound decent to many. But this is important to note because the Treasurer’s office uses an annual 7.25% average return rate for its actuarial calculations. In other words, when figuring out if the pension fund has sufficient assets to cover its growing obligations over the next several years, they need to assume a return rate on the pension fund investments to help them determine the financial health of the pension plan.

Needless to say, the difference between the actual 2.2% return and the projected 7.25% return on a $70 billion-plus fund is quite substantial. By my quick back of the envelope calculations, the difference amounts to $3.7 billion.

Bottom line: the state pension fund now has $3.7 billion fewer dollars than the Treasurer’s office assumed it would have at this point.

A few weeks ago, I blogged about the dangers of using unrealistically optimistic return projections for a fund that already has accumulated a $2.8 billion unfunded liability. Even using the Treasurer office’s own rosy estimates, the taxpayer’s annual contribution to keep the pension fund afloat was estimated to increase from $811 million this year to more than $1 billion in five years. Barring some miraculous investment returns in the next few years, it looks as though taxpayers will be digging even deeper into our pockets to bail out the pension fund.

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Apparently you must not have a background in finance or know what an average means. This is just political pandering to play to your narrative to destroy the pension plan. You’re motive are all too clear. This is the way the stock market acts and anyone with an education in finance understands this. Some years the marked may be up 10 – 20%. Some years it may be down 10%. Some years it may be up 2%. The AVERAGE would take all of the good years and bad years into account. This is not an unrealistic average of historical stock market returns. Will the stock market continue these returns? Only time will tell. The job of a financial analyst is to use historical data to try and predict the future. The job of a partisan mouthpiece is to spread misinformation to achieve the results of your party overlords. I will trust the financial analysts in financial matters. I know Civitas would never let facts get in the way of good propaganda though.

Thanks jlp75 for that insightful analysis. Until now I didn’t know what “average” meant. And I had no idea that market returns vary from year to year. (sarcasm/off)

What “misinformation” was included in my post – please point that out. And how is this blog post designed to “destroy the pension plan.” Your thoughtless rhetoric is rather amusing, although quite pointless.

The point of my post is that now the pension fund is falling further behind where it needs to be to be actuarially considered fully funded. How big of a hole are you comfortable with the pension fund digging – a hole taxpayers will have to fill? What happens after another year of 2 or 3 percent returns, and another year after that? What kind of incredible returns rates in future years will need to be achieved to get the pension back to fully funded status, to achieve that 7.25% average?

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